How to help detect and prevent merchant account fraud

Editorial Team

3 min read
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Credit card fraud continues to rise as criminals develop even more inventive ways of stealing financial data for unauthorized purchases. The introduction of EMV credit cards has helped to prevent fraudulent activity within brick-and-mortar retail environments. However, the security features that come with these chip-enabled cards offer zero protection in the online world.

Experts predict eCommerce credit card processing fraud could reach $25.6 billion in 20201. Some payment processors offer fraud protection tools to help limit your liability. Read on to learn how these tools can help reduce the amount of credit card processing fraud that may occur within your payment environment.

1. Basic merchant fraud detection steps

With eCommerce, all transactions are considered card-not-present (CNP), since neither the physical card nor the cardholder are present. Because of this, CNP transactions pose a greater risk for fraud. In order to make a sale, however, you have to trust that the true cardholder is authorizing each transaction. To reduce your risk, you can still ask for information that potential criminals might not have, including:

Address Verification (AVS)

In addition to the 16-digit credit card number, you should also request a billing address for each transaction. More specifically, you should verify the following:

  • Does the billing address match the contact information on-file with the card-issuing bank?
  • Is the customer trying to use a different shipping address (if ordering physical items)?

Card Verification Value (CVV)/Card Identification Number (CID)

Most consumer credit cards come with a three-digit card verification value (CVV) or four-digit card identification number (CID) that helps you verify whether the actual cardholder is presenting the card for payment versus a criminal with a stolen credit card number. Don’t authorize any transactions unless the customer can provide the correct CVV or CID code.

2. Country-specific transactions

With more advanced payment processing solutions, you can use country-specific IP filters to block or accept certain transactions.

Geo IP Tracking

This option allows you to automatically reject transactions from whichever countries you choose. For example, you can eliminate all purchases made from France, Japan, or Nigeria.

Card Issuing Country

With card-issuing country filters, you have even greater control. This feature allows you to only accept a payment if the card was issued in countries that you specifically select. For example, your merchant account only allows purchases made with U.S. or Canadian-issued credit cards.

3. Advanced fraud detection features

There are times when criminals have the right address and CVV code, and using proxies, they can circumvent traditional IP-detection. This is when you need to rely on more advanced security features like the ones described below:

Negative Database Security

Similar to spam detection, negative database security allows you to match each transaction against a list of high-risk card numbers and contact information.

Quotas and Thresholds

Set up your payment environment to only accept transactions above and below a certain amount. Anything outside of this range automatically gets declined.

Unusual Buying Patterns

Limit the number of transactions that can take place within a certain timeframe. With some “velocity” filters, you can even flag certain IP addresses and dollar amounts to gain more control.

Paused Transactions

Using a variety of filters, you can automatically put a hold on suspicious transactions. This is particularly useful for big-ticket items — especially when dealing with conveniently round numbers. Don’t let these transactions go through until you’ve had a chance to contact the cardholder directly.

Contact the Clover sales team to find out which Clover or partner solution is right for you.

1 “The Key to Preparing for E-Commerce Fraud in 2020,” TotalRetail, 3 January 2020

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